AMR profit predicted

[telebender1956]

Other than the "evil" part, I can't disagree. Unfortunately, employee cost is about the only thing that any company has pretty much complete control over (given negotiations with a union, if present). The cost of about everything else is at least partially out of the company's hands. Hence employees make attractive targets for cost cutting.

Yeah,AMR management uses the pockets of their employees to subsidize their own incompetence. It is ALWAYS the employees fault that AA is losing money.

 

[WorldTraveler]

Hopeful,
you are correct that AMR tried to perform an out-of-court restructuring which was not near large enough compared to what other airlines accomplished in bankruptcy.
While many of you decry the carriers that use bankruptcy, you do realize that it was precisely because those carriers turned to the courts that they were able to cut costs ACROSS THE BOARD and not solely target labor? DL said at one time that their employee "contributions" to their turnaround was about 1/3 of the total with a significant amount coming from fleet renegotiations (DL cut MD80 and some older 757 lease rates by 75%) as well as reducing debt expenses - DL dumped $4B in unsecured debt the day it entered bankruptcy - although some of that was converted to equity in the reorganized company.

I am certain that there will be people who will always criticize the BK process but it IS legal, it provided a lot more capabilities than it does now, and it also spread the pain to all parties.

IN many respects, it was AA's employees who took the brunt of AA's cost cutting efforts because there was minimal debt reduction and very little if any lease renegotiations - because there simply is little power to do that outside of bankruptcy.

I would disagree that AA management has been incompetent. They have done a very good job of retaining revenue DESPITE the cost challenges they face. I would argue that they have tried TOO hard to protect shareholder interests at the expense of their long-term position in the industry... but if UA's costs approach or surpass AA's costs, then AA managment will look pretty good at holding tight on the "slash and burn strategy" for the sake of not only the stakeholders but also the employees and customers. AA and UA are far from the total industry but combined they will control somewhere between 33-40% of the US industry which is more than large enough to sustain some cost disadvantages, esp. in key markets. There will still be room for lower cost rivals includijng DL but AA mgmt will have been shown to be quite patient in their cost control efforts - to the benefit of the stockholders.

SO, keep in mind that the airlines that cut expenses through BK did it in a much more balanced way than what AA did.

You are indeed right that AA's other employee groups have to contribute - and it is probably precisely for that reason that AA managment is reluctant to tackle the issue. They cannot expect to extract concessions from one labor group without doing it at others and the unions will make sure that no one is "unfairly targeted". Thus, AA's choice is either to just keep the status quo - current labor contracts with no increases but no further cuts - or file for BK where they MIGHT be able to extract changes but certainly not to the degree they once did....

but you are right that the problem is far bigger than just whether AA does in house overhauls.... and it is important to note that other carriers do in-house maintenance even if they choose to subcontract out SOME overhauls (even many of those are done in house at AA"s competitors).

 

[Hopeful]

I am certain that there will be people who will always criticize the BK process but it IS legal, it provided a lot more capabilities than it does now, and it also spread the pain to all parties.

No one is saying it is illegal. But it is actually applauded nowadays soley by the corporate world to finally "stick it to the unions" and screw the creditors. I recall a couple of airlines visiting the bankruptcy court more than once. Abbrogating their labor contracts and asking the bankruptcy judge to increase the executives' compensation in order to retain the key talent that will see them through the bankruptcy process.
Do you think those managements were competent?

You could file bankruptcy, restructure and further denigrate workers. But what kind of motivated workforce do you think you're going to have? You could use every legal means available to screw the workforce, but you can't force them to give you a 100% with the "lucky to have a job" mantra being continually played by management like an endless loop of elevator MUZAK.

 

[eolesen]

While many of you decry the carriers that use bankruptcy, you do realize that it was precisely because those carriers turned to the courts that they were able to cut costs ACROSS THE BOARD and not solely target labor? DL said at one time that their employee "contributions" to their turnaround was about 1/3 of the total with a significant amount coming from fleet renegotiations (DL cut MD80 and some older 757 lease rates by 75%) as well as reducing debt expenses - DL dumped $4B in unsecured debt the day it entered bankruptcy - although some of that was converted to equity in the reorganized company.

I am certain that there will be people who will always criticize the BK process but it IS legal, it provided a lot more capabilities than it does now, and it also spread the pain to all parties.

IN many respects, it was AA's employees who took the brunt of AA's cost cutting efforts because there was minimal debt reduction and very little if any lease renegotiations - because there simply is little power to do that outside of bankruptcy.

First of all, it wasn't just the employees. Suppliers and lease holders were also approached:

Subsequent to the ratification of the Modified Labor Agreements, the Company and American reached concessionary agreements with certain vendors, lessors, lenders (see Notes 9 and 13 for additional information) and suppliers (collectively, the Vendors, and the agreements, the Vendor Agreements). Generally, under the terms of these Vendor Agreements the Company or American will receive the benefit of lower rates and charges for certain goods and services, and more favorable rent and financing terms with respect to certain of its aircraft. In return for these concessions, the Company anticipates that it will issue - over time - up to 3.0 million shares of AMR's common stock to Vendors.

Second, the notion that there's little power outside of bankruptcy isn't exactly true. Suppliers don't want to become unsecured creditors.

Because it was done outside the courts, it's simply not public record as to who agreed to what. The only figure released "in excess of $175M" that suppliers agreed to in exchange for 3M shares of stock. And the only reason that was disclosed was because of the stock issue.

 

[WorldTraveler]

No one doubts that any restructuring is painful. Ask the employees at CO, DL, NW, UA, and US how painful bankruptcy was and they will certainly not hesitate to tell you. The difference is that those companies did what they had to do, turned the companies around, and in many cases the employees are beginning to recoup some of what was lost - at least among those that are still there. Dragging the restructuring process out for 8 years which is what AA has done by not filing for BK is precisely why AA morale is so low.

Many of the cost savings from AA's out of court restructuring were indeed public knowledge because it involved amounts large enough for AA and the suppliers/creditors to have to file to meet SEC guidelines. But it still wasn't as large as what other airlines accomplished in bankruptcy...you need only look at financial statements between AA and other airlines to see that. $175M was a fraction of what DL and UA saved in costs for that category and they were similar sized to AMR at the time they filed. The whole reason why those airlines sought BK protection was because they recognized they could not accomplish out of court compared to what they could do in court. They chose to take the bitter pill, impact all of their constituents - employees, stockholders, and creditors - do what had to be done and move on. Since both DL and UA have been able to report much stronger financials even on a margin basis than AMR as well as grow and acquire competitors, it is mighty hard to argue they did not use the tools they had available to them successfully. AA's best hope at this point is that competitors' costs will rise to AA"s levels and that AA"s productitity will INCREMENTALLY improve almost entirely through attrition of AA employees. And there are no large peers with which AA can merge so it is a given that AA will be a much smaller airline than DL and UA. Historically, size alone has translated into a significant revenue benefit; if that remains to be true, AA will have a permanent disadvantage to DL and UA even with similar costs (and DL is a lower cost competitor) as well as low cost carriers for whom size has no impact on their ability to take market share from AA.

 

[Kev3188]

Ask the employees at CO, DL, NW, UA, and US how painful bankruptcy was and they will certainly not hesitate to tell you.

Yes we would; there's not enough bandwidth on this site to list it all out...

$175M was a fraction of what DL and UA saved in costs for that category and they were similar sized to AMR at the time they filed.

See above. Ramp, cust. svc. agents, and stores alone at NW took a 181m annual cut.

 

[eolesen]

Again, $175m is what had to be made public.

A prior employer of mine renegotiated their contract with AMR, and wasn't part of the group who got stock. And because we were privately held, there was no requirement to disclose beyond the owners. Likewise, not all owners of debt or EETC's are publicly traded institutions, and companies who aren't based in the US aren't subject to the SEC's rules.

I don't disagree that DL and UA were able to screw more people in the process. But it's pretty sad to see people championing defaulting on your debts as being an acceptable form of competition.

 

[Hopeful]

No one doubts that any restructuring is painful. Ask the employees at CO, DL, NW, UA, and US how painful bankruptcy was and they will certainly not hesitate to tell you. The difference is that those companies did what they had to do, turned the companies around, and in many cases the employees are beginning to recoup some of what was lost - at least among those that are still there. Dragging the restructuring process out for 8 years which is what AA has done by not filing for BK is precisely why AA morale is so low.

The companies were turned around because management were incapable of managing properly and did not have the foresight to adapt to the changes ahead starting with deregulation. They felt all they had to do was destroy labor and the profits would pile up. Ask Lorenzo how that worked out for him. And he hired scabs....PanAM?... TWA? But of course, the anti-worker, pro-management establishment simply blames labor....
So the inept management runs to the bankruptcy court whining to a judge asking him/her to destroy or labor contracts so they may survive...."AND, BY THE WAY, YOUR HONOR.....COULD YOU PLEASE INCREASE EXECUTIVE COMPENSATION SO WE CAN RETAIN THE KEY TALENT THROUGHT THESE DIFFICULT TIMES....AFTER YOU TEAR UP ALL THE LABOR AGREEMENTS.....THANK YOU, JUDGE"

The bankruptcy court is the qucikest means for someone else to do what management is incapable of doing.

The situation is simply about profits, which is understood. But the airline industry has long been able to sustain the high times on their own merits.
American is no exception. Cut labor costs and the profits will come.

Don't realy need an MBA to run an airline, just a desire to take from labor.

 

[FrequentFlierCA]

Yeah,AMR management uses the pockets of their employees to subsidize their own incompetence. It is ALWAYS the employees fault that AA is losing money.

I don't think I've heard anyone say it's always the employees' fault.

There are a lot of reasons AA lost so much money in the last decade, to name but a few 9/11, two wars, disease outbreaks, skyrocketing oil prices and a ridiculous recession.

What hurts AA relative to its competitors (and this is where the employees come in) is that you guys cost more than Delta's pilots, or Southwest's flight attendants. Not fault, just math.

 

[Hopeful]

I don't think I've heard anyone say it's always the employees' fault.

There are a lot of reasons AA lost so much money in the last decade, to name but a few 9/11, two wars, disease outbreaks, skyrocketing oil prices and a ridiculous recession.
.

But the end result is always the same...The employees must give back!

9/11=no one flying=record losses=only way to survive is file Ch.11=instead emplyees give billions in concessions!
Two Wars=no one flying=record losses=only way to survive is file Ch.11=instead emplyees give billions in concessions!

Whatever is causing the company to lose money will always result in labor costs being cut which usually means workers getting hosed.

 

[frontline]

That's fine Hopeful but it's not just the workers who are getting hosed. Passengers have to pay for a lot of stuff that was once free, so they feel it too.

In the end the gains we get will be a result of profits AMR makes. Taking from a money losing company will only hurt us more in the end. So we have the hope the economy keeps recovering so that profits continue.

 

[MCI transplant]

<_< ------- The point is the membership took a hit in 2003 to keep the Company out of bankruptcy! At that time the Company promised that the membership would share in the gain, when, and if, that time would come!------- Well! Guess what? 😉

 

[telebender1956]

That's fine Hopeful but it's not just the workers who are getting hosed. Passengers have to pay for a lot of stuff that was once free, so they feel it too.

In the end the gains we get will be a result of profits AMR makes. Taking from a money losing company will only hurt us more in the end. So we have the hope the economy keeps recovering so that profits continue.

Too Bad the management of AA does not understand your statement here.

 

[boston]

Again, $175m is what had to be made public.

A prior employer of mine renegotiated their contract with AMR, and wasn't part of the group who got stock. And because we were privately held, there was no requirement to disclose beyond the owners. Likewise, not all owners of debt or EETC's are publicly traded institutions, and companies who aren't based in the US aren't subject to the SEC's rules.

I don't disagree that DL and UA were able to screw more people in the process. But it's pretty sad to see people championing defaulting on your debts as being an acceptable form of competition.

I so agree with you on this, why is it that NWA and DAl couldn't make a go of it but had to go into BK . If they were so smart and competant they should of been able to make it w/o BK. And it is unfair to do this to all your venders, not to mention the obvious-employees.

 

[Interested]

<_< ------- The point is the membership took a hit in 2003 to keep the Company out of bankruptcy! At that time the Company promised that the membership would share in the gain, when, and if, that time would come!------- Well! Guess what? 😉

I don't recall anything in writing though. And, I've always heard that promises were made to be broken.